How Marketers Can Make Sure They Get the Rebates They're Owed

Avoid Controversy by Nailing Down Details in Your Contracts

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Providing cash for rebates and volume bonuses to companies that place media for marketers is nothing new.

Advertising agencies and media buyers have received rebates (sometimes called Agency Volume Bonuses or "AVB's) from media outlets, e.g., television networks, print publications, etc., based upon the volume of media buys for decades.

The controversy is over who is entitled to receive those rebates and AVB's -- the agency or the marketer?

In 2008, IPG settled with the U.S. Securities & Exchange Commission to restate its income by millions on account of rebates and AVB's it received overseas that were not credited to IPG clients. In 2011, WPP subsidiary Ogilvy & Mather turned over millions in retained rebates and AVB's to IBM. In 2012, the ANA in partnership with Reed Smith reported the results of a survey that revealed agency retention of rebates and AVB's continued not only overseas but also in the United States.

While there are most certainly media buyers who properly pass on rebates and AVB's to their clients, there is reason to believe others do not (despite contract language mandating the credits). It has been alleged that some of these rebates and AVB's are paid to subsidiaries or affiliated companies that are not directly related to the marketer's immediate media buy. This makes uncovering them more challenging. The ANA's investigation of rebates and AVB's and how they are being treated continued with the creation of a task force in 2014.

To make sure they get what they're entitled to, marketers need to:

  1. Insist on return of rebates and AVB's in cash unless an exchange of space or other barter is compelling
  2. If possible, agree with the agency on percentages returned by media (or media vendor if applicable)
  3. Establish clear mechanics for tracking, reporting and payment
  4. Insure all agreements are clearly and specifically memorialized in the contract with the media buyer/vendor
  5. Include full audit rights in a contract and
  6. Communicate all relevant provisions of the agreement internally to finance, procurement and media management.

It's also wise to centrally manage the issue even if AVB's are returned in various countries. Central management allows greater overview of the money's movement and ability to uncover questionable accounting practices.

To be as certain as possible that accounting procedures are above board and all rebates and AVB's are accounted for, some consultants suggest asking agency corporate CFOs to periodically certify that there are no undisclosed rebates or AVB's throughout their agency network that should be credited to the marketer. If that is a route a marketer chooses to take, then it should consider insisting that every vendor (data, tech, media, production, etc.) likewise certifies that any credits have been properly applied to the marketer's account.

If a marketer has reason to believe improper accounting has occurred, then a forensic audit may be warranted. If fraud is detected, it may trigger a duty to report the activities to authorities. Be sure to cover who pays for such audits in contracts with the suppliers in question.

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Editor's note: This is the first in a series of pieces by Douglas J. Wood in which he puts seemingly unrelated yet converging developments about ecommerce accountability in perspective and explains why marketers need to prepare for unprecedented changes that lie ahead. Read Part Two.